5 Tips for Remodeling Success in a Down Market

After record remodeling levels for the last few years, 2007 and 2008 are predicted to be flat or slightly down. Competition is getting stiffer in a lot of places. Every market, even a down one, has its opportunities, though. Here are five ways remodelers can take advantage of a down market.

May 31, 2007




After record remodeling levels for the last few years, 2007 and 2008 are predicted to be flat or down slightly. Although conditions vary from market to market, competition is getting stiffer in a lot of places.

Every market, even a down one, has its opportunities, though. Here are five ways remodelers are successfully taking advantage of a down market.

Improve Your Labor Force

One advantage of a slower market is that many companies have to let people go. That means there may be some more talented people available that you couldn't have hired a year ago. Even if the remodeling market is great in your market, the new-construction slowdown has probably resulted in plenty of good employees being laid off.

Jason Levinson, president of Maryland Heritage Custom Builders in Frederick, Md., has added three good employees in recent months that he says he probably couldn't have hired if the new-construction market was better.

"There are a lot of good people out there that would probably be doing something else if not for the slowdown," he says.

If a company relies on trade contractors for most of its labor, there's opportunity there as well.

"We use a lot of subs, and before this, I couldn't get a trade contractor to call me back," he says. "They like the regular business of production building, but now they're becoming available to spot builders and remodelers."

Go Small

Most economists divide the remodeling market into two segments: improvements, and maintenance and repairs. Although improvements usually fluctuate depending on the market, maintenance projects are a solid market that continues to grow. While someone may put off a new kitchen, small projects are less likely to be ignored.

Handyman divisions can be an opportunity in any market, but if the rest of your business is slow it can be a good source of steady income. 4V Construction Corp., a design/build firm in New Rochelle, N.Y., started a handyman division last year and now has three full-time employees dedicated to it.

"We've turned it into a profit center on its own," says company President Anthony Cucciniello. "We don't get rich off of it, but the branding is key for us."

The average job is $250 to $300 for the division, but it can often lead to bigger work. Earlier this year, 4V signed a $250,000 addition that started as a $700 door repair, Cucciniello says.

4V charges an hourly fee, plus a 15 percent markup on materials. Previous customers are billed for the service, but new customers have to pay at the time of the visit. The division also gives 4V an opportunity to serve past customers in a way it wasn't able to before. In the past, the company tried to service them when they had a small repair, but that usually meant pulling a lead carpenter off a job and possibly disrupting other projects.

"The reality is if we were doing remodeling and trying to do handyman work, we were losing money," Cucciniello says.


... Or Go Big

On the other hand, aiming for the very top of the market can be a successful strategy as well. Four years ago, HP Builders in West Chester, Pa., made the decision to focus on "luxury remodels." Since then, the company's average job size has increased from $25,000 to more than $400,000. Company President Terry Keenan describes the new target market as "high net-worth people that expect the best."

These are the type of clients who are less likely to be affected by the fluctuation of the market but, because home sales are down, are more likely to remodel than buy a new home, Keenan says.

"The market that we're in, it doesn't matter what the economy is doing," he says. "That was absolutely part of the decision. We didn't want to get caught in the ups-and-downs of a middle market."

Focusing on the high-end market requires an increased emphasis on customer service. It's necessary to be very flexible with time, because the clients are more likely to be busy working long hours. Protecting the house is important, too, because many of these homes are like "museums," Keenan says.

HP has stopped advertising, and the company's most important marketing piece is a catalog mailed to homes valued over $1 million. It is also distributed to other providers of luxury services, such as high-end home theater installers.

Partner with Real-Estate Agents

With home sales down, many real-estate agents are looking for additional ways to improve business. Remodelers can offer their assistance in improving homes both before and after the sale. Homes on the market can offer a good opportunity for handyman services, and recently purchased homes are good targets for larger improvements.

Tim Frost, president of Peregrine Contracting in South Burlington, Vt., works with two local real-estate agents. He advises remodelers to seek agents that sell the types of home they typically remodel.

"You need to show them that there is some sort of benefit of associating with you," he says. "It's very important to be highly professional and let them know you do quality work."

Frost remodeled the home of one of the agents he works with. He formed his partnership with another by taking her to some of his best projects to show the company's work. When he gets a project from one of their referrals, Frost is quick to thank the agents with a gift certificate or dinner at a nice restaurant.

"Let them know you value their help and work to keep in constant touch," he says.

Invest in Property



Another way to keep a steady source of income is to purchase rental properties. Remodelers have an advantage over many landlords in that they can buy and improve — and then maintain — properties for less than someone not in the business.

The Basement Guys in Reynoldsburg, Ohio, owns 19 properties (35 total units) around the Columbus area.

"The real-estate market in Ohio is really down now, so it's the time to buy," says company President Luke Secrest.

Secrest targets properties that are in need of repair, particularly foundation work, which the company specializes in.

"We look for properties that other people are afraid of," he says.

Once the remodeling is done, the company turns management over to a local property management company. The Basement Guys handles all the regular maintenance but don't have to worry about the day-to-day dealings with renters. That's a step Secrest recommends other remodelers take.

"People need to realize where they make their money," he says. "Trying to manage the renters yourself is more trouble than it's worth."

Once you buy a few properties, it gets easier to find more, Secrest says.

"You run across a number of deals once you start buying," he says. "Neighbors start calling you, banks start calling you. Once people hear you're in the market, there are always people willing to sell."

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